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IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

LEARNING OBJECTIVES

I.DEFINITIONS

II.PROVISION RECOGNITION

III.THRESHOLD of IAS 37

IV. EXAMPLE FOR IAS 37

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I. DEFINITIONS

A provision is a liability where the timing or the amount is uncertain.

A contingent liability is a liability that may result, but depends (or is contingent) on the outcome of uncertain events.

For example, the company may have been taken to court, but the outcome of the case is not yet known. If they lose the case then they may have to pay a fine. There is therefore a potential liability, but it is not certain. The question is as to whether or not we show the potential liability in the accounts.

A contingent asset is where there may be an asset resulting for the company, but, again, it is not certain.

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Download Lesson: Chapter 4 Provision

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